tv Nightly Business Report PBS June 28, 2010 6:30pm-7:00pm EDT
>> tom: leaders from the world's 20 largest economies agree to transition from spending to saving. >> i think what wall street wants to see is if private sector demand is there. we've already seen enough from the governments. >> susie: but can business spending take the place of government stimulus? you're watching "nightly business report" for monday, june 28. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
this program is made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt >> susie: good evening everyone. nervousness in financial markets around the globe today on new concerns about that pledge from world leaders to cut the deficit. tom, what's worrying investors is that slashing deficits is a good thing to do, but doing it now could hurt global growth. >> tom: susie, the target set by the g20 summit is ambitious: cutting deficits in half by 2013. >> susie: the deficit debate has now moved from the toronto summit to the trading desks on wall street. scott gurvey reports. >> reporter: there was a distinct difference in tone between the united states and the europeans at the g20 meeting on how to strike the proper balance between stimulus and
deficit control. kurt reiman of u.b.s. says these differences add to market volatility. >> right now, the g20 meeting, things that are coming out of member states in terms of regulatory overhaul and certainly the geopolitical environment has kept markets on edge in spite of the fact that we've had an improved economic outlook and even earnings numbers have seemed to be showing up pretty decently recently. >> reporter: also adding to market anxiety is the fact that different parts of the world are in different phases of recovery. emerging markets barely saw a recession and are still strong. sovereign debt problems continue to threaten the eurozone while the u.s. recovery is moderate but continuing. the differences in economic outlook for the g20 governments makes a real policy consensus difficult. for that reason, alec young of standard and poor's says the outlook looking forward depends more on business than on government. >> the government, let's not forget, has already done a tremendous amount. i think what wall street wants to see is if private sector demand is there. we've already seen enough from the governments. they've already done an
unprecedented amount. now it's all about whether the private sector end demand is there. >> reporter: the challenge for investors will be to sort through all the information. market watchers predict continued volatility will be the result. >> at least for the next couple of months, and certainly heading into the midterm elections, we do think markets will do this sort of dance between looking at what's happening on the government front and also looking at the economic release calendar to get their direction. >> reporter: the experts say investors should pay careful attention to the forward-looking statements in upcoming earnings reports to judge if the private sector is ready to take up the stimulus baton from the government. scott gurvey, "nightly business report," new york. >> tom: here are the stories in tonight's "n.b.r. newswheel". stocks edged slightly lower. the dow fell five points, the nasdaq and s&p 500 each down two points. volume dropped off considerably from friday's pace. under one billion shares traded on the big board, under two billion on the nasdaq. incomes grew faster than
spending last month, making it possible for american consumers to simultaneously increase savings and support the economic recovery. the commerce department said consumer spending rose 0.2% while personal income rose 0.4%. and senator robert byrd of west virginia, the longest-serving senator in history, died today. his death at age 92 deprives democrats of a crucial vote as they seek to pass sweeping financial reform, at least until a replacement is appointed by west virginia's democratic governor. still ahead, breaking the familiarity habit. advice on investing outside your comfort zone. that's coming up in our series, "your mind and your money." >> susie: oil and gas companies operating in the gulf of mexico are beginning to shut down and evacuate non-essential personnel in preparation for tropical
storm alex. but so far, the storm does not pose a threat to most platforms. meanwhile, opec wants the u.s. to reconsider its moratorium on new deepwater drilling. the cartel says the ban could have a serious impact on oil supplies. the moratorium was put in place a month ago, but as stephanie dhue reports, leases for future drilling continue to be approved. >> reporter: since the explosion of the b.p. deepwater horizon, the interior department has accepted bids on more than 220 new leases for deepwater drilling in the gulf of mexico, including 16 from b.p. some environmental groups, including the defenders of wildlife, oppose the approval of new leases. the group's attorney, mike senatore, says it may not be in taxpayers best interest. >> if, down the road, a lease is suspended or withdrawn, the u.s. taxpayer is actually on the hook, financially. >> reporter: defenders of wildlife is challenging the lease sales in court. it argues the leases have been
approved with the same standards used before the b.p. oil disaster and those standards should be revamped. >> the entire environmental baseline in the gulf has now changed, and they need to go back and redo analysis and we don't think they should be incurring any financial obligations until that is done. >> reporter: the interior department disagrees. it says drilling safety rules have been completely overhauled in the gulf, so much so that no new drilling has been permitted since april. here's how the leasing process works. first, an area is opened up for auction, bids have to be approved, an exploration plan is filed, and an environmental assessment review takes place all before any drilling can proceed. the process can take a couple of years to complete. american petroleum institute economist sara banaszak says delaying lease approval would be an over-reaction.
>> that's a pipeline of activity that leads to the flow of oil and gas into the economy and there's just no reason to, these are on shore activities. >> reporter: it's also a matter of money. close to $1 billion was bid in the last lease sale that took place in march. the companies don't have to pay in full until the government approves them. and, if the government holds that up, bidders could get their 20% deposits back. energy expert lou pugliaresi says that means shutting off drilling will be more costly to taxpayers. >> the government also has a stake in the royalties and the rents, collecting the bonus payments. if they take the leases back, they're going to lose the rents and the royalties. >> reporter: the approval of the leases auctioned in march could be the last for a while. the next oil and gas lease sale was scheduled to take place in august, but like new exploratory drilling, that too is on hold. stephanie dhue, "nightly business report," washington.
>> hudson: while the energy controversies continues in the gulf, it is not just confined to deep water drilling. and peter ricchiuti is a finance professor at tulane. and he joins us. welcome back. nice to see you. >> thanks, tom. >> hudson: what's the state of the gulf energy industry without deep water drilling? >> well, deep water is a big piece of it. in fact, the deep water gulf of mexico is the last place to make bi oil finds, the gas finds and the smaller oil finds are all over the place. >> hudson: you have brought three areas along with you. these areas beyond deep water include shallow water, reviving old energy fields and natural gas shale. do you think these areas can attract investor interest and invest money if deep water drilling comes back? >> i think it can. i think it just needs at least temporarily have the eyes of the country focused back on it. it's an exciting place. >> hudson: you brought along a
player, and we have a -- we have done a lot of reporting, and we've heard about the shallow water drilling, some of the safety concerns are still out there. this has clearly gotten hit by the deep water horizon explosion. >> you hear deep water, well, this is shallow water deep drilling. they're drilling in a few feet of water. areas that have been poked at since the late 1940's. they're drilling 30 to 35,000 feet into the earth and they have made some huge significant discoveries. in january, they hit the davey jones property and they have more out there. >> hudson: the water itself is only a few hundred feet deep, but the drill, the bit goes almost twice as deep as the deep water horizon goes. >> yes. >> hudson: you like mmr. >> yeah, they've got a lot of potential going forward. >> hudson: reing old -- reviving old oil fields on land is also
an idea. what do you like adnr? >> well, a lot of places have been dormant, these companies are coming in and realizing wait a minute, when you drill a well initially, you only get 50% of the oil and gas. they're coming in and flooding that field with co 2. like coca-cola and bubbling it back out to the top. >> hudson: does oil need to be above $70 a barrel for that to be economical? >> i think above $50 level they can make some money. >> hudson: and finally, a big area in pennsylvania and in northwest louisiana under investigation. the play here, carbo ceramics, an interesting type of service provider. >> yeah, its seems esoteric, when you frac the oil well, the oil and gas needs to get to if
surface and once you crack it, mother nature wants to close it again. this company makes little bb's that keep it open. >> hudson: there are environmental concerns about shale. we saw the stock rally for crr. any concerns? >> that is still being looked at and one of the things that excites me, president obama mentioned natural gas as a fuel of the future. maybe it will get its due. >> hudson: any disclosures for the three? >> i don't own any of them. maybe the mutual fund does. >> hudson: thank you, peter ricchiuti, financial professor at tulane university.
>> susie: the supreme court struck down today a challenge to one of the biggest reforms put in place to prevent fraud in corporate america. the so-called sarbanes-oxley act is still the law, but the high court ruled that the board which polices auditors of public companies has some unconstitutional practices. specifically, the president of the united states did not have enough legal power to fire any members on that accounting board known by its acromym p.c.a.o.b. as georgetown law professor don langevoort explains, the ruling was a narrow one that falls short of what some businesses wanted. >> in terms of businesses' desire to have either the p.c.a.o.b. as a whole struck down or sarbanes-oxley struck down, that was explicitly rejected by the court. >> susie: langevoort expects businesses will likely continue
to work with congress to weaken the sarbanes-oxley law. you know, tom, this was one of many decisions that came out of the high court today that has big implications. >> one involving the tobacco industry and one involving gun makers. let's begin with tonight's market focus. it was a quiet day as the second quarter winds down this week. consumer staple stocks led the gainers. we start with the consumer staples exchange traded fund. it was up 1% today, bouncing off the $26 per share level, a price where it has found buyers four times in the past six months: in february, may, and now twice in june. soft drink stocks were one of the two strongest groups within the sector. dr. pepper rallied to within $1 of a new high.
pepsi and coke each saw slightly heavier than average volume on their rallies. tobacco was another consumer industry jumping. in addition to the supreme court decision regarding accounting oversight board, the court rejected appeals by the government and cigarette makers of a ruling that found the industry guilty of racketeering. both sides were appealing for very different reasons. shares of big tobacco rallied as the high court ruling ends uncle sam's attempts to get billions in past profits from the industry. the case goes back to a lower court for a judge to rule on penalties. those penalties may include advertising restrictions, but not going after past profits. reynolds american, altria-- which runs philip morris in the u.s.-- and lorillard all saw gains. a separate high court decision on gun rights helped the stocks of two gun makers. the court struck down a chicago city ban on handguns. both smith and wesson and ruger
rallied. smith and wesson may have more to say on wednesday after the closing bell when it reports fiscal fourth quarter results. the price drop in march came when its guidance was below estimates. decisions by another government group had repercussions for two health care stocks. the centers for medicare and medicaid services decides how much the government pays for procedures. it wants to cut reimbursements for some rehabilitation services. rehab care group was hard hit over the worries of lower payments. the stock plummeted almost 16%. tonight, shares are at their lowest price since early november. the jump back then came when the company forecast strong revenue and earnings growth for 2010. it wasn't alone in the sell-off. heart monitoring equipment maker cardionet lost 15%. the company wants the medicare and medicaid agency to allow for a national reimbursement rate for its technology. instead, the agency wants to
allow local administrators to set the rates, and that could lead to lower payments. after hours, the focus fell on memory chip maker micron technology. profits jumped thanks to an acquisition, but also prices for its core chips were up, helping profits. it didn't help, though. while shares came into the report up almost 6%, they lost about that in after hours trading. buyers were back in the bond market in a big way, driving down the interest rate on the benchmark ten year government i.o.u. the rate sits just above 3%, it's at its lowest since april 2009. the bond buying comes as an international debate ensues over government deficits, as scott reported on earlier, and ahead of friday's employment report. and that is tonight's "market focus."
>> susie: when it comes to sports, most people root for the home team. and when it comes to investing, many people buy stocks in companies also on their home turf. this is called familiarity bias, and some finance experts say it's not a smart way to invest. i talked today with one of those experts, nicholas barberis, professor at the yale school of management, as we continue our series "your mind and your money." we began the conversation by talking about the most common mistakes investors make.
>> i think it's called home bias, and people invest in the domestic stocks and missing out the international diversification. the something is called local bias, and they invest in the stocks even in the united states and they invest in the local stocks. connecticut people invest in the connecticut stocks. and the third investing mistake is investing too much in the stock of your own company in your retirement plan which is again tying your financial well-being far too much to the fortunes of this one company. >> gharib: but nick, doesn't this go against the goal of superstar investors like peter lynch who says buy stocks in the companies that you know. invest in companies in your own backyard? >> i think it's a difference between actually knowing and just thinking that you know. if you know a company incredibly well inside out, there might be a case for investing in that company. but i think what happens is people often think they know about a stock, but they actually don't. that's what the evidence shows
for example with own company stock allocationallocations. s to are you telling people if they have special incentives to buy stock for the company they work for, they shouldn't take it? >> i say you shouldn't take itself. you're exposing yourself to a bad scenario. if the company does poorly, you'll lose your retirement savings and you could lose your job. the way to avoid that is not to invest in the stock, even if it's at a discount. >> gharib: and after hearing the stories about people investing in enron, there's evidence that people are investing in the companies that they work for. is this a sign that people feel in times of uncertainty that it's better to go with something familiar? >> i do think this is linked to the familiarity bias, yes. stock investing is a complicated business so often we fall back on what's familiar. even if it's bad for our
long-run growth. >> gharib: some people might question the benefit of doing that because global markets are so connected. when one goes down, they all gone down. >> if you look at how a stock market does over a week or a month, yes, it's true that they move together. if you look at how a stock market does a year, or two years, that don't move together too much. if you're -- they're not as strong, but they're still there. >> gharib: what's your advice to investors, how they can break this familiarity habit? >> i don't think there are any simple tricks but i remind myself of the power of diversification. i think people should harness it and use it in their portfolios. invest internationally, don't concentrate on local stocks or in the stock of your own company. i think the second thing is go with index funds rather than actively managed funds. because of the evidence showing that the average actively nanned fund will fall short of index funding. ises are you saying they
shouldn't give their money too a professional money manager? >> i would advise against it because it will underperform the indices. of course, some do manage to beat it over time, but it's hard for an ordinary investor like me to pick it out in advance. >> gharib: and investors should stay the course. what do you mean by that? >> well, if sometimes goes wrong, if the market does poorly they'll revert to the more familiar things again. which may feel good in the short run, but is bad for your long run health. >> gharib: nick, thank you for coming on the program. >> thank you. >> tom: here's what we're watching for tomorrow. quarterly results from general mills. we'll also see the s&p/case shiller home price index for april and the conference board releases its consumer confidence index for june. also tomorrow, the empire state is suing b.p. we'll ask new york comptroller why he thinks the oil giant misled investors about the spill in the gulf.
>> susie: the obama administration announced today that it will double the amount of airwaves available for mobile broadband. it will help to meet the demands of smartphones and other wireless gadgets that are expected to explode in popularity. the president called on federal agencies to identify sources of the spectrum controlled by the government and private entities. over the next ten years, they'll be freed up, primarily for mobile broadband use. >> tom: electric car maker tesla motors has revved up the number of shares it hopes to sell in its initial public offering. the company has raised the size of its i.p.o. to more than 13 million shares, up from a previously planned 11 million. tesla has yet to make a profit. but the 20% boost suggests the company is seeing a strong interest in the offering from investors. the stock is set to trade on the nasdaq tomorrow under the symbol t.s.l.a. shares are expected to price between $14 and $16 a share. e"@úúúú
>> susie: as we reported, leaders of the world's 20 major economies embraced cutting spending and raising taxes over the weekend. their decision came despite warnings from president obama that doing so could choke off a global recovery. here with his thoughts on government spending is glenn hubbard. he's dean of columbia university's graduate school of business and former chairman of the council of economic advisors under president george w. bush.
>> government deficit fears have gripped greece, dominated recent u.k. elections, and raised heretofore unthinkable questions of default of some large u.s. states. and earlier this month, alan greenspan painted a grim picture for america unless it gets its fiscal house in order. we can do this, but we need to take a deep breath-- to ask what we want government to do, then how to pay the bill. of course, we value national defense, infrastructure, and support for education and research. but that's not where our fiscal problems lie. those problems come from costly promises we have made to ourselves for retirement and health care spending on social security and medicare. we need to clarify our promises, then keep them. one role for government is a social safety net, security for retirement and health care for those who need it, with others assuming more of their own burdens. an alternative is a larger role in providing retirement and
health care support generously to all, even those who need little help. our present tax system wont pay for this second vision. if we step back and agree we want the second larger role for government, we will need to add a new tax for all of us, like a value-added tax, to pay for it. we will also need to accept the cost of higher taxes in lost jobs and lower incomes. we have a choice to make. alan greenspan is right, we must make it soon. i'm glenn hubbard. >> tom: that's "nightly business report" for monday, june 28. i'm tom hudson. goodnight everyone, and goodnight to you too, susie. >> susie: good night, tom. i'm susie gharib. goodnight everyone, we hope to see all of you again tomorrow night. "nightly business report" is made possible by:
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